Midwest economy improves, but new jobs still rare

The economy in nine Midwest and Plains states continues to strengthen, but a new report released Tuesday suggests businesses are reluctant to hire new workers so unemployment will likely remain high.

The overall Mid-America Business Conditions index rose for the sixth month in a row in May, but economic doubts remain because of the financial turmoil in Europe and concerns that exports will suffer if the dollar continues strengthening.

"There is just too much economic uncertainty right now for firms to hire more aggressively. It is going to take many months before most states in the region recover jobs lost since the recession," Creighton University economics professor Ernie Goss said.

The report, which is based on a survey of supply managers and business leaders, uses a collection of indexes that range from zero to 100, and any score above 50 suggests economic growth in the next three to six months. Scores below 50 suggest a contracting economy.

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The overall index grew to 64.2 in May from April's already-strong 61.7, suggesting good things for the economy in Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota.

Goss, who oversees the survey, said it will take many months for most states in the region to recover the jobs they lost during the Great Recession, so unemployment won't improve quickly even though the employment index hit its highest level in nearly four years. The employment index increased to 60.1 in May from April's 58.4 and March's 57.9.

"The financial turmoil in Europe is a threat to the economic expansion underway. It has increased the value of the dollar, which has made U.S. manufactured goods and farm products less competitive abroad," Goss said.

But thus far the stronger dollar hasn't hurt exports. The export order index grew to 59 in May from April's 57.

The import index also improved in May to 63.2 from April's 59.8.

Goss said the survey shows that the region's business managers remain optimistic about the next six months. The May confidence index slipped to 69 in May from April's 72.9 but remained well above the growth-neutral score of 50.

The prices-paid index, which tracks the cost of raw materials and supplies, remained high in May at 80.4, but it was down slightly from April's 81.2.

For the fourth consecutive month, supply managers increased inventory levels. The survey's inventory index increased to 54.6 in May from April's 53.2.

Other components of the overall index:

-- New orders increased to 72.4 from April's 70.

-- Production or sales hit 72.2, up from 65.8.

-- And delivery lead time grew to 62.1 from 61.4.

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Online:

Creighton Economic Forecasting Group: http://www.outlook-economic.com

(Copyright 2010 by The Associated Press. All Rights Reserved.)